Whenever someone is losing or feeling threatened, a common response is to talk trash about the opponent, often referred to as “saving face.” It is a desperate tactic meant to deflect attention from your failures, by pointing out any flaw you can find in the competition. Enter Dell and Creative. They are losing the digital music battle and find themselves having to explain their failures in the space by doing one simple act of desperation, attacking the iPod.
Let’s first take a look at a current statement by the CEO of Dell, Kevin Rollins (c|net interview):
“It’s interesting the iPod has been out for three years and it’s only this past year it’s become a raging success. Well those things that become fads rage and then they drop off. When I was growing up there was a product made by Sony called the Sony Walkman – a rage, everyone had to have one. Well you don’t hear about the Walkman anymore. I believe that one product wonders come and go. You have to have sustainable business models, sustainable strategy…[The Mac mini] might take some here and there, but Apple’s market share in the global computer business has really shrunk pretty far. Where they’ve been making success recently is not in the computer business, but in the iPod music business. So this might be an interesting new product but I’m not really believing this is going to turn the industry upside down.”
It was in 1979 that Sony proclaimed, “Remember the Walkman,” and that fad, Mr. Rollins, had a shelf life of well over 15 years. It ushered in a new age of portable music and only dissipated due to the demand for portable CD players, and now the new age of file based players. The world Walkman entered the global lexicon and was often as common a phrase as that fad, the portable facial nose waste receptacle…the kleenex.
Dell, a company that apparently doesn’t do anything based on fads, was full of bravado when they released their online music store and media player. Expecting to rule the marketplace as they did with their PC mentality that “price is everything,” they just couldn’t seem to capture any decent market share, and in a sad show of desperation, even offered iPod users the option to trade their device in towards the purchase of a new Dell DJ unit. It seems odd to me that a company so unimpressed by the success of Apple and the iPod, would go to such trouble to actually “lose” money on the deal. Consider the fact that Dell’s unit at the time sold for $100 less ($199) than the iPod ($299), and they were offering $100 rebate with your iPod trade in. So, Mr. Rollins, if you are so convinced that this is all a fad, then I suggest you explain to your shareholders why you would dedicate so many resources towards a product that you know won’t help your bottom line. Shareholders aren’t big on fads.
Mr, Rollins, it seems, is saving face. How else do you explain to the media, and your shareholders that the mighty computing behemoth is losing to a computer company whose market share is just a fraction of their global dominance?
Let’s look at another interesting statement from Kevin (same interview):
“Apple’s created a niche. If you look at the grand scheme of things, this quarter we are supposed to achieve something like $13.5 billion in revenue. Apple’s in the $2.4 billion (region), so the size and scale is not even in the same league.”
Apple, whose market share in the computing world almost doesn’t even register, returns a better margin on their products with a smaller share of the market. This proves that Dell’s strategy of “giving it away” might just be a fad and not a long term sustainable strategy. Apple users have always known they pay an upfront premium, and this mystified other computer manufacturers.
My belief has always been that when you’ve brought the PCs value down to a disposable level, that the only way to continue to sell new machines and survive such narrow margins, is through innovation. It seems that people are no longer just looking for the best deal, they are also looking for something which captures the imagination. The iPod has continued to show the world why Mac users continue to come back again and again. Dell on the other hand is going to face some serious problems once they’ve finally reached the corner they painted the computing industry into. And with China entering the computing business (through the purchase of IBM’s PC division), I think we’ll be seeing an end to Dell’s dominance in a short time.
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And then we have Mr. Sim Wong Hoo, CEO of Creative who said of the iPod Shuffle:
“Actually, to me it’s a big let-down: we’re expecting a good fight but they’re coming out with something that’s five generations older. It’s our first generation MuVo One product feature, without display, just have a (shuffle feature). We had that — that’s a four-year-old product.
“So I think the whole industry will just laugh at it, because the flash people — it’s worse than the cheapest Chinese player. Even the cheap, cheap Chinese brand today has display and has FM. They don’t have this kind of thing, and they expect to come out with a fight; I think it’s a non-starter to begin with.”
Creative who? Are they still around?
This statement reminds me of the Iraqi propaganda minister proclaiming there there were no American troops in Iraq. It’s downright amusing. Mr. Hoo, Apple doesn’t have to come out with a fight, they are winning. You have to come out with the fight, and so far you’ve failed to make any inroads into Apple’s market share since you proclaimed war on them back in November of 2004.
“I’m planning to spend some serious money — I intend to out-market everyone,”
-Sim.
That plan includes spending a whopping $100 million targeted squarely at Apple. Here’s where this falls short. Since Apple is winning the battle, they don’t have to spend a single penny to distinguish themselves against any other music player. In fact, I’m not sure I’ve ever seen an Apple ad for the iPod that was anything but a cultural reference as to how cool this thing is. They are selling mountains of these units based on pure lust and word of mouth. And why this isn’t a fad is simple. People who buy iPods quickly realize that they work and they work really well. There’s no buyers remorse, as there is with many other products that are cultural fads. In this world of constant noise and crowded sidewalks, the iPod gives us the illusion of personal space. Their advertising captures that spirit. Creative’s problem is that they have to convince the world they are better than Apple, and so far they don’t really have the product or identity to do it yet.
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Apple’s Problem
Don’t get me wrong, Apple doesn’t have this all sewn up. Apple has issues they are going to have to address at some point. I’d like to see them do this before their market share starts to decline. The simple fact that the Shuffle doesn’t work with all AAC formats, and that you actually have to re-encode your music to their format, is absurd. While Sony recently proclaimed that they made a mistake in locking consumers into their own proprietary music formats, and thus allowing the market to get away from them, Apple seems content to ignore this lesson and plod forward. And why not, their proprietary format hasn’t driven consumers away from their platform…but this is only because consumers don’t yet know how it will affect them down the road.
For example, the new Sonos digital music system is the product I would expect from Apple. Truly brilliant in execution and engineering, yet it can’t play my iTunes music store files, but I’m getting one anyway. Thus the ever present dilemma occurs…do I break Apple’s DRM simply so I can play my own music, thus potentially turning a law abiding citizen into a criminal? (For gods sake will the Supreme Court rule on this stuff (again) so we can stop these people before we get innovated out of all of our fair use rights?)
As new products and services arise, more and more people will realize that they don’t want to be locked to just one specific player or platform. I personally don’t think that the cost of music is going to be the major deciding factor over where people get their files (you can only go so low), but it will in fact be new and diverse hardware and software products that will direct this. People are going to want devices like the Sonos and will quickly decide that Apple’s hold on the music you buy from them is detrimental to your enjoyment of it. They will start looking to buy elsewhere in a very short time.
Apple needs to do two things to remain the leader in this space. First, we need to see iTunes updates and new features more often. They are few and far between. Second, Apple needs to realize that their margins on players is much better than their margin on music, so simply open up their DRM format to other companies. iTunes and the iTunes Music Store can remain the de facto source for media of all types if they simply continue to do what they do best…innovate. People bought the iPod with no thought about any proprietary format, they simply wanted one.
Take a lesson from your own play book: if you build the best experience, people will come, regardless of price. I know from my own experience that I keep coming back to Apple’s store, not because they lock me in, but because it’s design and execution are unmatched.
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Well regardless of who eventually comes out on top in this fight for dominance, the one thing that is true in this situation is that sour grapes do make the best whine.
OK, there’s a new 
